The present method of paying for healthcare expenses partially covered by medical insurance is cumbersome. This is especially true for a consumer wishing to pay for eligible healthcare expenses using funds from a tax-advantaged account (TAA), such as a flex spending account or health reimbursement arrangement. The healthcare provider must submit a claim for the part of the expense paid for by insurance and charge the participant for the balance due (Participant balance-due amount), which usually consists of, but is not limited to, the sum of the co-payment amount, any deductible amount, any uncovered amount, coinsurance, etc. If the participant has a TAA with her employer and desires reimbursement, the participant must save the receipt and submit it to a plan administrator, a function that the employer typically out-sources to a third party administrator (TPA), to receive reimbursement, usually with a significant delay. This is a problem for the participant since she pays out-of pocket twice, the first time from her paycheck and the second time to the provider, before she can be reimbursed for the eligible medical expense. The TPA then must manually process the receipts and adjudicate the participant's claims according to the Internal Revenue Service (IRS) and employer plan rules. This is a costly and error prone process since TPA's usually administer plans from numerous employers and each employer can tailor its own plan with respect to eligible medical expenses. The TPA then sends reimbursements to the participant for eligible claims. This is considered the initial and usual system process for reimbursing participants from their TAAs for eligible medical expenses. Although attempts have been made to streamline the process, significant inefficiencies and unnecessary costs remain. The trend is for more money fronted in TAAs as the participant balance-due amount increases due to increases in co-pay and deductible amounts.
Initial System Problems
Problems associated with the initial process for reimbursing the participant for eligible expenses from TAAs include the following:                1. There is a cash (or credit) outlay by the participant that temporarily doubles payment in connection with FSAs, and requires a payment by the participant in the case of HRAs that should be unnecessary since the employer has already funded the account. As participant point of sale obligations such as co-pays and deductibles go up, this becomes a bigger problem for the participant.        2. If reimbursement is desired, the participant must save the receipt and submit it to a TPA to receive reimbursement, usually with a significant delay. This is extremely inconvenient for participants.        3. The TPAs must perform manual claim adjudication. Manual claim adjudication is costly. For example, there is a manual, multi-step process associated with tying the payment of the participant balance-due amount at the point of sale (such as co-pay) to a qualified medical expense under IRS and employer plan regulations.        
Additionally, an increasing number of employers are using combinations of TAA plans for employees. Not only are employers permitted to offer multiple TAAs to employees, such as offering employees both an FSA and an HRA, but employers may create different restrictions related to otherwise allowable expenses under IRS rules for each. This practice has increased the manual processing requirements and created significant risks of error. Since the employer is ultimately liable on the plan, yet it is the TPA who is typically managing the plan, conflicts inevitably arise as these plans and plan combinations become more and more complicated.
In order to solve some of the initial system problems, a method of payment for healthcare expenses from TAAs with a debit card was introduced. The participant can pay for any participant balance-due amount at the point of sale with the debit card using traditional payment networks such as the MasterCard network. The payment transaction would verify against and debit the participant's TAA for the amount of the transaction. The debit card provider would then pay the healthcare provider directly for the amount of the transaction. The intent of the debit card is to eliminate the participant double-pay (or unnecessary pay in the case of payments from HRAs) penalty for eligible medical expenses paid from TAAs. Unfortunately, this system of payment does not solve all of the initial system problems and, moreover, introduces significantly greater problems. The participant still must save all her receipts for auditing purposes and verification that she purchased only qualified medical expenses according to the IRS and employer plan rules. Even though the debit card transaction was electronic, the TPA must still manually adjudicate every claim since the participant can purchase any product at the point of sale with the debit card, not just eligible medical expenses (the cashier has no way of knowing that the debit card relates to a TAA, nor would it have the means to enforce particular rules). What's worse is the fact that the TPA must manually adjudicate each debit card claim with less information than it had when manually adjudicating with receipts. For debit card transactions, the TPA can typically only see who the provider was and the transaction dollar amount. No information about the product or products purchased is available to the TPA at this point. The debit card processors usually have constraints so that purchases can only be made through qualified medical providers such as medical equipment providers and pharmacies; however, these institutions sell many products, not just products that are eligible medical expenses under IRS and employer plan rules. It is up to the TPA to decide which transactions look suspicious and request the documentation from the participant for these transactions (hence the need for the participant to maintain receipts). There are also usually significant processes in place to recover funds from participants who have made debit card purchases for impermissible medical expenses or who can't provide the requested documentation to prove that they made an allowable medical purchase. These range from disabling the debit card to garnishing the participant's wages. This is all because the debit card does not prevent the purchase of unqualified medical expenses up front.
First Effort to Overcome the Problem—Debit Card
The debit card solves only one of the problems with the initial system. It partially solves two other problems. It actually creates several additional problems.
The problem the debit card solves is related to the “double payment.” With the debit card, payment for goods and services comes directly from the TAA, therefore the double payment (and unnecessary payment with respect to HRAs) problem is eliminated.
The two problems the debit card only partially solves are:                1. While the debit card eliminates the need for a participant to submit every receipt for reimbursement from the TAA, the participant is required to maintain receipts for proof of authorized purchase in the event the adjudicator requests supporting documentation, such as in connection with an audit.        2. Since the debit card eliminates the need for participants to submit every receipt, it also reduces the amount of TPA time necessary for the processing of receipts. While this reduces costs (a bit), the TPA must still manually adjudicate claims. There is still a multi-step, manual process (if the participant balance-due amount looks “suspicious,” the TPA must request the appropriate documentation from the participant, receive the documentation, and review the documentation to verify the subject claim) to tie the participant balance-due amount to a qualified medical expense. Now, though, the TPA has less information to assess legitimacy of purchases. This actually creates a much greater risk of fraud or other abuse related to use of TAA funds for unauthorized purchases. The risk is increased because multiple and unrelated purchases can be made in one transaction (bundled with a qualified medical expense) without any practical ability to police purchases at the point of sale. While debit card providers have attempted to mitigate this problem by allowing transactions to occur only at merchants with specified merchant category codes. This and other techniques are only band-aiding the underlying flaws in the debit card system.        
The debit card system actually creates additional problems:                1. Previously, a participant needed to only present an insurance card and identification to the provider. The debit card system requires a participant to also carry and present a TAA debit card.        2. The employer must pay an additional fee to the TPA for each debit card participant, typically in the amount of $2 Per Employee per Month (PEPM).        3. Since the debit card system effectively replaces cash transactions, Providers must now pay a bank charge for every authorized TAA transaction (fee associated with the debit card usage).        4. Since the debit card has eliminated the need for participants to submit each receipt for reimbursement, adjudicators have less information to assess legitimacy of purchases, and each transaction is therefore at a higher risk of fraud.        5. The debit card system cannot properly adjudicate claims in the case where an employer has restricted the IRS expenses which would otherwise be allowable in the FSA or HRA plan.        6. The debit card system does not facilitate payment from multiple accounts. And it does not facilitate rule-based payments from multiple accounts.        
Other Efforts to Overcome the Problem
There have been attempts to mitigate problems associated with the initial system or the debit card system, or both. They are described briefly below.
The websites www.evolutionbenefits.com and www.medibank.com both disclose FSA cards. These cards allow a participant to spend money directly from a FSA, rather than pay out-of-pocket and seek reimbursement later. However, www.medibank.com still requires the participant to save the receipts to verify eligibility of the expenses. Further, the account cards only allow spending from the participant's FSA. If the participant runs out of money in the FSA, the participant will be forced to pay out-of-pocket, or provide other payment means.
United States Patent Application Publication No. US 2002/0147678 discloses a debit card system for accessing funds in a participant's FSA. The debit-card does not post directly to the participant's FSA, but rather to a program sponsor's shadow account (an unfunded account used for record keeping purposes during claim adjudication). The funds to pay the provider for the transaction are deducted from the program sponsor's group account (funded by the sponsor) at the same time as the posting to the shadow account occurs. The transactions (not the funds) remain in the shadow account until such time as they can be adjudicated, at which time they are released from the shadow account and posted to the individual participant's FSA. Rejected transactions are moved from the shadow account to the program sponsor's suspense account. The program sponsor can use the information in the suspense account to reclaim the funds from the participant by various means, such as debiting the participant's next paycheck. This provision in and of itself underscores the deficiency with the proposed approach. A combination of manual and automatic adjudication methods are proposed for handling the FSA reimbursements.
United States Patent Application Publication No. US 2002/0198831 discloses a means for processing FSA transactions using a plurality of pharmacies, a stored value card service provider (SVCSP), one or more pharmacy benefits managers (PBMs), individuals having FSAs, and a stored value card (SVC) for debiting a participant's FSA. At the point of service (POS), the goods or service provider, such as a pharmacy, electronically transmits a claim to the respective payor, such as a PBM, which includes the participant information. The payor adjudicates the claim and responds with the participant balance-due amount. At the same time, the payor transmits some of the transaction data, such as the participant identifier, date and time of the transaction, and participant balance-due amount, to the SVCSP. The participant then uses the SVC at the POS to pay for the participant balance-due amount from the participant's FSA. The SVCSP handles the adjudication of this SVC transaction by searching its' database for a matching transaction received from the payor. If a match is found and there are sufficient funds in the participant's FSA, the transaction is automatically adjudicated. If no match is found, the adjudication request is rejected. The intent of this invention is to prevent the use of FSA dollars for impermissible IRS expenses. This requires that the payor successfully adjudicates only claims for IRS allowed expenses. This requirement is stated as an advantage of the subject invention. The fact is payors, such as PBMs, are focused on participant eligibility, what is and what is not covered under a specific participant's health plan, and what participant balance-due amount is due for a claim. Payors/PBMs are not focused on or concerned with whether or not a claim is for an IRS allowable expense and an employer allowable expense in connection with a TAA, and this validation is not part of their normal adjudication process. There is a shared responsibility between the employer, SVCSP, and participant to ensure that such reimbursements are properly substantiated according to IRS and employer plan rules. More specifically, there may be items that are covered by medical plans and therefore successfully adjudicated by the payor, which are not expenses allowed by both the IRS and employer rules in connection with the TAA. This point conflicts with the invention's proposal that SVC transactions that match a payor adjudicated claim can be automatically adjudicated by the SVCSP as IRS and employer plan allowed TAA expenses. Furthermore, this invention moves the day-to-day task of ensuring IRS claims substantiation from the employer to the payor, a party that is not substantially involved with this responsibility in whole or in part today, thus opening the door for more complicated compliance procedures and/or potential legal ramifications. This point is underscored with the invention's statement of the advantage that the payor (and not the SVCSP database) may retain sufficient information to enable the SVCSP to later prove that the specific drug or item that was the subject of the transaction was properly reimbursable. Simply put, the fact that an item has passed the payor's adjudication does not mean it is properly reimbursable under IRS and employer plan rules.
United States Patent Application Publication No. US 2003/0061153 discloses a method of using a debit card for an employee benefits program. The debit card transactions are processed as “e-claims” and still require the participant to send in receipts and the processor to manually adjudicate these claims. Significant mechanisms are described to notify participants that receipts are due for substantiating a claim and to disable the debit card in situations in which the claims are not verified within a specified period of time or if the claims are for unqualified IRS expenses. As well, no mechanisms are described for preventing the purchase of impermissible IRS expense items upfront.
In summary, none of these approaches a complete solution to the problems associated with the initial system; participant inconvenience and costly manual adjudication of TAA related claims. Additionally, the foregoing attempts to solve the problems with the initial system have created new problems; a greater potential for unauthorized use of TAA dollars, increased employer and provider costs, and new participant inconveniences. In fact, all debit card approaches substantially require mechanisms to recover tax-advantaged dollars used for purchases that may later be deemed to be impermissible. The increasingly sophisticated attempts to automate some of the claim substantiation with debit cards, such as matching purchase amounts with participant health plan co-pay amounts to automatically adjudicate debit card transactions allow room for abuse by savvy participants who can use the debit card to cover non-qualified product/service purchases that match these same amounts. These efforts will result in increasing exposure over time as the complexity of health plans are increasing with the combination of larger and varied co-pay, deductible, and coinsurance amounts. Moreover, these efforts do not eliminate the costly manual adjudication of claims for reimbursement.
IRS Guidance
The IRS, in the advanced copy of Revenue Ruling 2003-43, which was scheduled to appear in the Internal Revenue Bulletin 2003-21, dated May 27, 2003, has described the rules regarding the use of debit cards and credit cards to reimburse participants in self insured medical reimbursement plans. It is clear from the guidance that the IRS requires all claims to be substantiated, no matter how small the dollar amount. The desire to fix the problems of manual claims substantiation and consumer double pay are so great that the IRS has provided for some scenarios in which claims can be automatically substantiated, without a receipt, with a debit/credit card transaction. First, claims in which the dollar amount at a health care provider equals the dollar amount of the co-payment for that service under the major medical plan of the specific employee-cardholder can be automatically substantiated. Second, recurring expenses that have been previously approved for the same amount, from the same provider, and during the same time period can be automatically substantiated. Third, if the merchant, service provider, or other independent third party, at the time and point of sale, can provide information to the employer that the charge is for a medical expense, the charge can be automatically substantiated. All other scenarios are considered conditional pending confirmation of the medical expense. In our estimation it is still possible that invalid medical expenses can be reimbursed via the first two scenarios described above. It is also possible under the third scenario, with debit card use, that invalid medical expenses can be reimbursed if the employer has restricted the allowable expenses in their tax-advantaged plan. While the IRS is attempting to reduce costs associated with manual claim adjudication, the implementation of these scenarios will be costly.
Problems that Still Remain                1. The participant must carry a debit card or temporarily double pay (or unnecessarily pay in connection with payments out of HRAs) participant balance-due amounts.        2. The participant must use the TAA debit card for TAA approved expenses, and a separate means of payment for other combined purchases, therefore, two or more card transactions must occur at the point of sale.        3. The participant must save all receipts and send in for reimbursement or in the case of debit card transactions, keep receipts for potential TPA audit.        4. If an employer selects the debit card approach, the employer must pay the TPA and additional fee for each debit card participant.        5. The TPA must manually adjudicate each claim based on receipts received, or manually adjudicate each “debit card” claim without receipts (thereby creating a potential for fraudulent use of TAA dollars for non authorized purchases).        6. With either the initial system transactions or the debit card transactions, there is a multi-step, manual process to tie the participant balance-due payment amount to a qualified medical expense under IRS and employer rules for TAAs.        7. There is no fully automated way to adjudicate claims for employer-specific FSA or HRA plans that restrict the allowable IRS expenses. Without a fully automated (rule based) adjudication system for TPAs, as the complexities of plans increase, employers will be subject to greater exposure to liability for processes that are managed fully by a TPA.        8. There is no easy way to enable a participant to pay the participant balance-due amount from multiple prioritized accounts (both TAA and non-TAA accounts).        9. There is no easy way to enable a participant to pay the participant balance-due amount from another participants accounts, such as the account of a spouse.        
What is needed is a system that solves all of the problems presented by the initial system, without creating new problems.
What is needed is:
                1. A system that eliminates the out of pocket expense (double payment or otherwise unnecessary payment) by the participant of the participant balance-due amount.        2. A system that eliminates the inconvenience of receipt maintenance or submission.        3. A system that eliminates the need for two transactions at the point of sale in the event the participant is purchasing non-authorized items in addition to the authorized items.        4. A system eliminates the out of pocket expense (double payment or otherwise unnecessary payment) by the participant and the inconvenience of managing receipts without adding a debit card expense to the employer, and allowing the funds to be used only for plan eligible expenses as defined by the IRS and employer plan rules.        5. As system that eliminates all manual processing in connection with claim adjudication of TAA reimbursements.        6. A system that meets all of the IRS claims substantiation requirements electronically, without the need for manual record keeping and processing to ensure that all claims are related to legitimate plan eligible expenses that have not been previously reimbursed and are not reimbursable by any other means.        7. A system that enables the employer to define and implement rules associated with reimbursements from a participants TAA for payment of participant balance-due amounts, and removes all adjudication obligations and responsibilities from the plan administrator.        8. As system that enables a participant to pay participant balance-due amounts from multiple accounts including accounts of another participant, such as an account of a spouse.        